July 23, 2012

 

Asia grain prices to rise on dry US weather

 

 

Asian grain prices are expected to climb as US crops continue to wilt in the persisting arid weather, trade participants said Friday (July 20).

 

CBOT grain futures hit new all-time highs this week with corn rising above US$8/bushel and soy moving above US$17/bushel. Wheat is at a four year high above US$9/bushel with no sign yet that the rally will be over any time soon as dry weather conditions continue.

 

"The drought is not only severe but prolonged," said an executive with a Jakarta-based commodities trading company.

 

Many in the market expect prices to rise further as above-normal temperatures and below normal rains are forecast in most US agriculture areas in the next three months.

 

There is potential for prices to rise by another 10%-15%, said Paul Deane, a Melbourne-based agricultural economist with ANZ Banking Group.

 

Traders in Asia are already bracing for US$10/bushel or higher corn and wheat and US$18/bushel or higher soy near-month futures on the Chicago Board of Trade.

 

"Prices will probably move higher from here but once the new harvest starts arriving from next month, there may be at least some correction," said an importer in Seoul.

 

Many feed manufacturers are not comfortable buying at current price levels as they are still hoping US weather will improve, bringing prices down, he said.

 

South Korea is yet to cover its wheat, soymeal and corn requirements for November, December and January arrival, trading executives said.

 

Some corn needs for December arrival are also to be purchased, they said.

 

In Japan, importers have less time to wait because import needs even for October shipment are yet to be met.

 

The Taiwan Flour Millers' Association Thursday bought 43,500 tonnes of US wheat from United Grain Corp. for Sept. 3-17 shipment, trading executives said.

 

The association bought Dark Northern Spring wheat with 14.5% protein at US$405.89/tonne and Hard Red Winter with 13% protein at US$377.09/tonne, free on board.

 

Due to a severe drought in the US, the prices are more than US$70/tonne higher than in mid-June. Earlier this week, Taiwanese buyers cancelled a tender to import corn and soy, citing high prices.

 

Unlike corn and wheat, where non-US origins are available for sale, importers are heavily dependent on the US for soy and soymeal, mainly because of the recent drought in South America.

 

In end-May, east Asian buyers bought South American soymeal on a delivered basis around US$500/tonne, C&F for October shipment while latest offers for November shipment are around US$660/tonne, or up by a third.